by Alyssa Oursler | September 25, 2013 11:06 am
Lululemon (LULU) stock — which is sitting more than 5% in the red year-to-date — recently was dumped by Delaney Schweitzer, executive vice president of LULU’s North American retail operations.
The yoga-pant exec unloaded more than 36,000 shares of LULU — more than 75% of her overall Lululemon stock stake. At the sell price of approximately $74, that’s a whopping $2.7 million transaction.
Sure, it’s always difficult to analyze insider selling. After all, it was only one Lululemon exec running for the exits, and Schweitzer might just have needed millions of dollars for something.
But still, it’s at least a little troubling considering LULU stock already comes with plenty of other red flags.
It’s already been an up-and-down year for Lululemon stock. The company recalled some yoga pants in March — a mishap that’s expected to result in a $67 million loss in sales for the full year. CEO Christine Day resigned a few months afterward, prompting a giant one-day selloff of LULU.
Just look at the year-to-date chart below:
Even the company’s second-quarter earnings beat — which came thanks to already-lowered expectations — was tempered by Lululemon’s lowered outlook, blamed on a delay in receiving fall products.
If I were long Lululemon stock, I’d be sick of the excuses.
While Lululemon stock posted killer gains in the past three full years, its biggest growth seems to be behind it.
Sure, if you perfectly timed LULU’s recent “rebound,” you could have racked up 16% gains in the past three months.
But most investors don’t perfectly time anything. And you have better things to do than bottom fishing for a stock that has essentially moved sideways since the spring 2012.
Lululemon stock is in a classic transition phase from momentum stock to growth stock. Don’t get caught in the middle of those growing pains. Even despite recent weakness, the stock is trading for almost 30 times forward earnings, and no longer has the growth to back that kind of premium up.
This year, Lululemon stock is only slated to improved earnings by 6% — thanks in part to the aforementioned sheer pants problem. And even next year, analysts have already been paring back their expectations for LULU — a reality that can’t be blamed on see-through yoga pants.
All in all, Lululemon earnings are only on pace to grow by 18% per year long-term.
That’s not bad — but it’s not what investors are used to. And it’s not enough to give Lululemon stock enough steady upward momentum to be worth riding.
I would follow Schweitzer’s lead, and do something else with the money you have sitting in LULU stock.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.
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